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Another step closer to being debt free! Now onto a 529...

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    Another step closer to being debt free! Now onto a 529...

    My husband and I will pay off another debt this next paycheck. We're now left with my 20k student loan, a 92k rental property mortgage, and our 170k primary mortgage. Paying off the most recent debt will free up an additional 200 a month. I plan on snowballing this into my student loan, but I'd like to set aside a small portion to start a 529 with (I'm currently pregnant with our first child).

    Which company do you use to fund your 529?

    #2
    Is the rental paying for itself and is it worth more than you owe? If it is then it is investment debt, IMO. I would not considered it personal debt. This is just me thinking in technical terms, but I'm sure you look forward to it being an debtfree investment.

    Do you have an mutual fund company you trust? Most like Vanguard and Fidelity offer 529's.

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      #3
      We don't invest college money in 529s - not a fan of the vehicle, though it definitely depends on your individual circumstances.

      529s are inflexible and tend to have high fees. A reason to have one would be if you were eligible for a state tax deduction (some states only), or as a wealth management tool (grandparents gifting college money, etc. Or if you have already maxed out your 401ks, HSAs, and IRAs).

      That said, 529 plans are offered by states, more than institutions. So if you are set on a 529 plan, I would research at the state level. If you do get a state tax credit, it may only be if you pick your state's plan (isn't that correct?). A good website to research various 529 plans, follows:

      Savingforcollege.com - The internet guide to funding college and Section 529 college savings plans.

      Other people will recommend ESAs (more like IRAs). I am not a fan because my professional understanding was that politically they were dead, and would be phased out. Congress is busy with other things though, and old accounts may be grandfathered in, so may not be the worst to start there. It's more like an IRA in that you can invest anyhow/anywhere.

      My kids' money is in a regular accounts at Vanguard. They make too little to pay any tax or be subject to kiddie tax. Eventually could transfer into a ESA or 529, but until there is any tax considerations, I rather keep my low cost/flexible options open, myself.

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        #4
        Thank you for your help MonkeyMama!

        It looks PA offers a tax deduction:
        Unlike most states, Pennsylvania residents receive a tax deduction for contributing to any state's Section 529 plan. In other words, if they decide against using Pennsylvania's 529 plan, and instead use another state's plan, they'll still receive the deduction.
        Pennsylvania does not currently offer a tax deduction to residents contributing to other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

        Pennsylvania residents trying to decide whether to use a Section 529 plan versus these other types of college accounts, need to factor in the potential tax savings of contributing to a Section 529 plan. Considering that Pennsylvania has a flat state income tax rate is 3.07%, each deduction of $13,000 can save a taxpayer up to $399.10 at tax time.

        I am going to have to look into this further.

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          #5
          Guppy, I live in PA, too.

          We used PA's 529 plan when my son was little, and then I moved the money to the Massachusetts plan because it's managed by Fidelity, where I have my retirement money, and I liked the investment options there better.

          We still have a bit of money in PA's guaranteed savings plan, where you essentially lock in today's tuition rates. We did that to balance out the rest of our college savings, which are more aggressively invested. I haven't been adding money to it, though. It's guaranteed by the state, but in the current economic crisis some states have been close to insolvency and it makes me nervous to think of PA not being able to make good on that promise when it's time for my son to enter college.

          In principle I agree with MonkeyMama about 529s, but since we have a state tax deduction here in PA, and since the grandparents have been making contributions, it made sense for us to use 529s instead of some other kind of account. Also, I am the child of divorced parents, so I confess I wanted my son's college money tied up in 529s just so it would be very clear what the money was for in case his dad and I weren't together by the time he got to college. I'm not worried about that any more, but as a new parent it was one of the things I worried about.

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